My friend and colleague, Stephen Del Percio, who runs the always excellent website gbNYC, wrote a timely blog post last week about the importance of government investment in infrastructure in the wake of Hurricane Sandy, rightly concluding that the challenges posed by climate change should be an issue of national security.

The full post is below, or you can click here to go to gbNYC and read it there.

One way to promote funding for crucial, large-scale public infrastructure projects while avoiding the politically charged atmosphere surrounding climate change is for government to present its threats in the context of insufficient and aging infrastructure as a matter of national security

The events of the past few days emphasize that the challenges posed by climate change – from extreme weather to rising seas – are a matter of both regional and national security. The unprecedented damage Hurricane Sandy inflicted on the New York City area should be an urgent reminder to our elected officials that the local impacts of global climate change – whatever you believe is causing them – are real. It’s also an important opportunity to reflect on the general lack of leadership from the federal government on this critical issue and a renewed chance to demand that Congress take strategic, systemic, and long-term remedial action with appropriate input from states and municipalities.

That action must include funding comprehensive improvements to the tunnels, power conduits, wastewater systems, and other physical networks that are essential to a functioning built environment. For example, much of New York City’s infrastructure that Sandy’s unprecedented storm surge swallowed dates from the early 20th century – some of it from even as far back as the 19th century. And much of it is also underground. So the threats to it from coastal flooding and rising sea levels are particularly acute. But if extreme weather’s ability to completely shut down the country’s largest metropolitan area and disrupt the lives of millions of people isn’t an issue of national security then what is? At the very least, the scenes of devastation across the Jersey Shore, Staten Island, and Breezy Point make adapting our cities and supporting built environment for more extreme weather patterns a moral one.

But what’s most important to consider is that – in this era of shrinking budgets – state and local governments cannot do it alone. Sandy’s crippling impact on our region’s bridges, tunnels, and power systems underscores why the federal government must step up and help fund the crucial, large-scale infrastructure projects needed not only in New York City – where Moynihan Station and the Mass Transit Tunnel are essentially collecting dust – but across the rest of the country too. Rather than reactively spending billions cleaning up after disasters like Katrina, Irene, and Sandy, proactively funding key projects will not only help to protect the public from future extreme weather events but also provide incalculable economic benefits – including jobs – and an improved quality of life for millions of people.

One way for the federal government to do this while avoiding the politically charged atmosphere surrounding climate change is to present its threats in the context of insufficient and aging infrastructure as a matter of national security, directing funds to the states for important projects accordingly. Simultaneously, cities like New York can continue to be laboratories of leadership for the types of sustainability and climate change policies that the federal government has to date eschewed. For example, PlaNYC 2030 is an important and impressive piece of climate change-focused policy leadership that Mayor Bloomberg’s administration has deftly implemented. Other state and local governments should follow New York City’s lead by crafting sensible legislation that makes sense for their particular geographic locations.

The alternative? The tired trickle-down policies being proposed and pursued by our right-leaning political leaders will do nothing but guarantee that scenes from the past few days across the New York City metropolitan area become the rule rather than the exception. Instead, increased tax revenues, a national infrastructure bank, and renewed commitment in Washington towards America’s tunnels, bridges, and rails could go a long way towards changing attitudes about funding for large-scale public projects.

But Nero is about to start fiddling: with public borrowing costs at historic lows, it is a crime against future generations that politicians prefer to bicker than build, gridlocking government while critical urban infrastructure needs are ignored, compromising our future, our economy, and our national security.

For attorneys or other professionals who are interested in becoming a LEED-Accredited Professional, here is a blog post (posted with permission from CleanEdison) explaining the benefits and requirements for doing so.

To follow up on this blog’s previous post, in August 2012, New York City posted its first benchmarking report pursuant to Local Law 84. The law, passed in 2009, requires that privately owned buildings over 50,000 square feet, and publicly owned buildings over 10,000 square feet, annually measure and report their energy and water use. The law requires that building owners submit energy and water usage data each year by May 1 of each year. The law also requires that the city release an annual report.

The data was collected via EPA’s Portfolio Manager tool and relies for the most part on self reporting. Data collected includes energy use intensity (EUI), greenhouse gas (GHG) emissions, Energy Star ratings, and water usage per square foot.

2,065 buildings (totaling 2.6 billion square feet) in New York City benchmarked their energy for 2011, a nearly 75% percent compliance rate. Of these, 1,298 are in Manhattan, 283 are in Queens, 281 are in Brooklyn, 153 are in the Bronx, and 50 are in Staten Island.

Key findings of the report include the following:

On average, New York City buildings have a median Energy Star score of 64 (out of 100), which is in line with other buildings in the Northeast but better than the national average for buildings of 59.

Newer office buildings tend to use more energy per square foot than older ones, which seems surprising at first blush. However, older buildings tend to have less extensive ventilation systems, better thermal envelopes, and less dense or energy intensive tenant occupations.

Larger office buildings tend to be more energy intensive than smaller ones, but smaller multifamily buildings tend to be more energy intensive than larger ones.

The most energy-intensive buildings (those in the fifth percentile) use as much as three to five times (!) as much energy as the least energy-intensive buildings (those in the 95th percentile.

Bringing large buildings up to the median EUI in their building type category could reduce total NYC building energy consumption by 18 percent and GHG emissions by 20 percent.

This blog has been following the controversy surrounding Property Assessed Clean Energy, more commonly referred to as PACE. Here’s an update:

Background
In the last several years, several states and municipalities have enacted legislation that authorizes the creation of finance programs, typically through the sale of municipal bonds, that allow residential building owners to make energy efficiency improvements and/or install renewable energy systems. These programs are referred to as Property Assessed Clean Energy, or PACE.

Briefly, PACE programs attempt to solve the up-front cost problem by allowing residential building owners to borrow this money at a low interest rate. The property owners then repay their loans over 15–20 years via an annual assessment on their property tax bill. PACE liens “run with the land,” meaning that if the loan is not fully paid off before the property is sold, the remaining payment obligation passes to the purchaser. A PACE bond is a debt instrument (i.e., lien) where the proceeds are lent to property owners to finance energy efficiency retrofits, who then repay their loans over 15–20 years via an annual assessment on their property tax bill. These bonds can be issued by municipal financing districts or finance companies. The PACE lien is senior in right to a mortgage, making it attractive to investors. The program allows municipalities to create financing districts and to float bonds to investors to raise the money for the program.

FHFA’s Stance Toward PACE Liens
In May 2010, Fannie Mae and Freddie Mac, government entities that guarantee more than half of the residential mortgages in the U.S., issued letters to mortgage lenders stating that these liens could not take priority over a mortgage financed by either entity. In July 2010, the Director of the Federal Housing Finance Agency (FHFA) (the federal agency that regulates Fannie Mae and Freddie Mac) issued a statement that PACE financing would increase homeowner debt burdens and “could create a greater potential for the loss of a home through a tax sale or foreclosure if the consumer cannot meet the extra debt burden.” Following FHFA’s statement, in August 2010, Fannie Mae and Freddie Mac announced to lenders that they would not purchase mortgages originated on or after July 6, 2010 (the date of the statement) which were secured by properties encumbered by a PACE lien. The net result of these actions has been that virtually all PACE programs across the country have been put on hold or discontinued.

California Lawsuit Against FHFA
In response, several lawsuits were filed. One such lawsuit was filed by the State of California, several California counties and municipalities, and the Sierra Club in the Northern District of California, alleging violations of the APA, NEPA, and various state laws. In August 2011, the district court issued a potentially wide ranging decision partially denying the motion to dismiss. In the most important part of the opinion, the court held that that FHFA’s July 2010 statement amounted to a final agency action and that, as such, it was subject to the APA’s requirements for notice and comment.

Recently, in August 2012, the district court issued an opinion granting partial summary judgment in favor of California on largely the same lines as the August 2011 decision. As before, the court held that the agency was acting as a regulator when it took action concerning Fannie Mae and Freddie Mac and not as a conservator. The court held that FHFA’s directives on PACE obligations amount to substantive rulemaking, not an interpretation of rules that would exempt it from the notice and comment requirement. The court ordered the agency to complete the rulemaking process now underway.

FHFA Rulemaking
In January 2012, FHFA issued an advance notice of proposed rulemaking as well as a notice of intent to prepare an environmental impact statement (EIS) under NEPA concerning its policy. The rulemaking sought comment on three alternatives: (1) maintain the current directive prohibiting the purchases subject to first-lien PACE obligations, (2) retract the directive and permit Fannie Mae and Freddie Mac to purchase loans subject to PACE liens, or (3) adopt an alternative policy that permits Fannie Mae and Freddie Mac to purchase mortgage loans with first-lien PACE obligations under certain conditions.

FHFA received over 33,000 comments in response to its advance notice. After considering these comments, in June 2012, FHFA issued a notice of proposed rulemaking that essentially adopts the first directive preventing Fannie Mae and Freddie Mac from purchasing mortgages with PACE loans. The proposed rule directs the agencies to (1) cease purchasing any mortgage that is subject to a first-lien PACE obligation and (2) refuse to consent to the imposition of a first-lien PACE obligation on any mortgage. The proposed rule effectively implements the same policy FHFA began in July 2010.

The Notice also sought comment on three alternative rules. In the first, Fannie Mae and Freddie Mac would not purchase any mortgage subject to a PACE lien unless one of the following conditions was met: (1) repayment of the PACE lien is irrevocably guaranteed by a qualified insurer, which would be triggered by any foreclosure or other similar default; (2) a qualified insurer agrees to insure Fannie Mae and Freddie Mac against 100% of any net loss attributable to the PACE lien in the event of a foreclosure or other similar default; or (3) the PACE program itself provides for substantially the same coverage via a sufficient reserve fund maintained for the benefit of mortgage holders subject to the senior obligation under the program.

In the second alternative rule, FHFA would direct Fannie Mae and Freddie Mac not to purchase any mortgage subject to a PACE lien unless all five of the following conditions were met: (1) the PACE lien is no more than $25,000 or 10% of the fair market value of the underlying property, whichever is lower; (2) the current combined loan-to-value ratio is no greater than 65%; (3) the borrower’s adequately documented income ratio is no more than 35%; (4) the borrower’s credit score is not lower than 720; and (5) the PACE lien is or will be recorded in the relevant jurisdiction’s public land-title records

In the third alternative rule, Fannie Mae and Freddie Mac would adopt certain provisions of the PACE Assessment Protection Act of 2011, mentioned above. The rule would impose an number of requirements, including the following: (1) the homeowner must be current on all taxes and mortgage payments and must have not filed for bankruptcy in the previous seven years; (2) the PACE project has been subject to an audit or feasibility study; (3) the audit or feasibility study shows that energy or water savings from the PACE project will exceed its costs; (4) the total PACE assessment for a property does not exceed 10% of the estimated value of the property; and (5) the property owner has equity in the property of not less than 15% of the estimated value of the property. The comment period remained open until July 30, 2012.

Conclusion
Notwithstanding the above litigation, Fannie Mae and Freddie Mac’s reluctance to provide mortgages for properties with PACE liens has put the program’s future in doubt. Many states that financed their programs through stimulus funds are suspending or withdrawing their programs because of the deadlines involved with applying for these grants.

Local Law 84, one of the so-called “Greener, Greater Building” laws enacted by New York City several years ago, established a mandatory annual filing for all buildings over 50,000 square feet (10,000 square feet in the case of municipal buildings) of an energy benchmark report using the Energy Star Portfolio Manager online tool. The law also requires that an annual report be prepared by the city for the first three years of the program. This summer, the city released the first such report.

I was a member of the Friends of Benchmarking, a group convened by the Sallan Foundation and the Newman Real Estate Institute at Baruch College. The goal of the group was to prepare a white paper that provides an overview of issues central to public discussion of the law and to offer recommendations for how the law can be improved. On August 27, 2012, the white paper was released.

Compliance with the law has been a resounding success. More than 12,000 buildings ultimately filed reports by December 31, 2011, a compliance rate of over 75%. The number of buildings filing is far greater than has been achieved by other municipalities that have instituted similar public disclosure laws.

However, as the white paper makes clear, the law and its rollout was not without pitfalls that need careful attention. For example, given that the energy benchmarks are intended to be public information, building owners may be concerned that the ranking will affect the quality and desirability of their property. Thus, a poor ranking that is based on faulty data or analytical methods is a concern. Recommendations to improve data quality highlighted by the white paper include annual random sampling of buildings, implementing procedures for obtaining better tenant data, implementing guidelines for data centers and other energy-intensive areas of buildings, assuring correct handling and entry of tenant data, and creating uniformity in how consultants measure and input data.

Another topic that the white paper discusses is data usefulness. This is a function of how well potential users understand how to use the data that is made public and how to realize value from it. As the paper explains, the very act of compiling energy data into one place is a fundamental step in the energy management process. It is the starting point for conducting a building energy audit and is, in effect, an important best management practice. One recommendation discussed by the paper for improving data usefulness is the creation of a simple guidance document for building owners that explains scores and ranking, comparisons with buildings of similar size and function, and a year-to-year comparison to track building performance over time.

A third topic is the necessity for a public information campaign that explains the benefits of the law and encourages a “race to the top.” Thus, the paper recommends that buildings that have complied with the law should be publicly recognized, buildings that have the lowest scores (and potentially could realize the most savings) should be targeted for outreach, and tenants should be informed of ways to improve energy efficiency in their spaces.

The paper was the result of several meetings and a lot of hard work, and I was glad to play a part.

On June 25, 2012, the Ninth Circuit affirmed a district court decision that found that an energy efficient building energy code adopted by the Washington Building Code Council in 2009 met the requirements for obtaining an exemption under the Energy Policy and Conservation Act (EPCA). Specifically, the court held that the 2009 Code met all seven requirements for obtaining a building code exemption under the statute.

Background

In 2006, the Council adopted a building energy code for new construction in the state which did not exceed federal requirements. In 2009, the Council revised the building energy code to add a 15% annual net energy consumption reduction requirement to be achieved through a point system whereby credits can be earned by making certain improvements to the efficiency of a building’s shell, heating equipment, and other energy consuming devices. The revised standard is stricter than what is required under EPCA. The revised standards were to take effect July 1, 2010, but were delayed until January 1, 2011.

EPCA sets federal energy efficiency guidelines for residential appliances used in buildings, including heating, ventilation and air conditioning equipment. EPCA also requires that states adopt and periodically revise their building energy codes to comply with the International Energy Conservation Code (IECC). While EPCA prohibits imposing state regulations that are stricter than those set by the IECC, it does allow for exceptions for state energy codes as long as they meet seven enumerated requirements.

The lawsuit alleged that the 2009 Code, as passed by the Council, required new buildings to have HVAC, plumbing, or water heating equipment whose efficiency levels exceed those set by EPCA. The lawsuit further alleged that the BIAW had made investments in inventories of equipment which comply with the federal standards, the sales of which would be disrupted if the state energy code goes into effect. At issue is a provision of EPCA, 42 U.S.C. 6297(f)(3), which allows an exemption for state and local building codes provided that the codes meet the seven requirements set forth in this provision. The two requirements at issue in this case are 6297(f)(3)(B) and (C), which are forth below:

(B) The code does not require that the covered product have an energy efficiency exceeding the applicable energy conservation standard established in or prescribed under section 6295 of this title, except that the required efficiency may exceed such standard up to the level required by a regulation of that State for which the Secretary has issued a rule granting a waiver under subsection (d) of this section.

Plaintiffs alleged that some of the options required by the Code to reduce a building’s energy use happen to be cheaper than other options, and thus contended that they were being required to use these products

(C) The credit to the energy consumption or conservation objective allowed by the code for installing covered products having energy efficiencies exceeding such energy conservation standard established in or prescribed under section 6295 of this title or the efficiency level required in a State regulation referred to in subparagraph (b) is on a one-for-one equivalent energy use or equivalent cost basis.

Plaintiffs alleged the Code did not allow credits on a one-for-one equivalent use basis.

The District Court Decision

In February 2011, the district court held that the Council did not violate EPCA when it enacted the 2009 Code. Specifically, the court held that the 2009 Code met all seven of EPCA’s requirements to obtain a building code exception under the statute. The court rejected plaintiff’s argument with respect to subsection (B), noting that the Code did not require products with higher efficiency than mandated by federal standards as the only way to comply with the Code. It also rejected plaintiff’s arguments with respect to subsection (C), explaining that while there is some disparity in credits, EPCA did not require identical energy savings.

Plaintiffs appealed the decision to the Ninth Circuit.

The Ninth Circuit Decision

In affirming the district court decision, the Ninth Circuit largely agreed with its rationale. With respect to subsection (B), the court held that that a builder is not “required” to select an option simply because there is an economic incentive to do so. The court reasoned that the subsection is violated when a code requires a builder, as a matter of law, to select a particular product or option. With respect to subsection (C), the court held that BIAW’s argument that the Code does not satisfy this condition relies solely on a BIAW member’s declaration, noting that the district court rejected it given that the witness was not qualified as an expert to challenge the state’s calculations of equivalent energy use savings. It held that the court did not abuse its discretion in doing this. The court concluded that the fact that each option did not have an exact match in terms of energy savings was an inevitable result when comparing different methods that use different product to obtain an energy conservation goal, and that this did not equate to a violation of the statute.

This decision is a welcome one for states, like Washington, that are looking for ways to make buildings more energy efficient and should provide interested states with a roadmap for how to structure energy efficient building codes in ways such that they do not run afoul of EPCA.

In 2007, President George Bush signed the Energy Independence and Security Act. Included in the Act is Section 433, which requires that all new federal buildings (and major renovations of federal buildings costing at least $2.5 million) meet a fossil fuel-generated energy consumption reduction of 55% in 2010, 65% in 2015, 80% in 2020, 90% in 2025, and 100% in 2030. In essence, the section requires that new federal buildings become fossil-fuel free by 2030 and was designed to be a national model for carbon-neutral construction.

The rule, which has yet to be finalized by the Department of Energy, is being opposed by several industry groups, including the American Gas Association and the Federal Performance Contracting Coalition. According to an Issue Brief distributed by these groups, many federal agencies “do not have the ability to comply with the fossil fuel generated energy reduction mandate and therefore will not renovate,” resulting in higher energy bills for the federal government and the American taxpayer.

Some groups, including the American Institute of Architects, are calling these claims misleading. They state that over 95% of buildings owned by the federal government are three stories or less and can be easily renovated to meet Section 433. They further state that there are numerous low-cost solutions for reducing energy consumption in single story and low-rise buildings, such as daylighting and ventilation strategies, natural heating and cooling systems, and high-performance products and fixtures. In addition, the federal government can purchase renewable energy to meet part of its mandated fossil fuel reduction target directly from electricity suppliers.

Currently, the House of Representatives is considering halting the implementation of Section 433 by not appropriating federal money needed to complete the rulemaking. The move would need Senate approval.

On April 30, 2012, the New York City Council unanimously approved Zone Green, New York City’s proposed zoning amendments that remove various hurdles for developers and building owners to incorporate green elements such as solar energy systems, thicker walls for insulation and rooftop gardens into their properties. A previous blog post detailing these amendments is available here.

On March 28, the City Planning Commission approved the amendments with various modifications and clarifications, including the following:

Require that applications for certification for a rooftop greenhouse be delivered to the affected Community Board when filed

Clarify that the maximum height for a rooftop greenhouse receiving floor area or height waivers is 25 feet, measured from the level of the roof to the highest point of the greenhouse.

Where the text sets forth the energy efficiency standards that would entitle new buildings to deduct up to eight inches of exterior wall thickness from floor area, modify references to the NYC Energy Conservation Code (NYCECC) to reflect the potential for future modifications to the NYCECC.

When a new building deducts up to eight inches of wall thickness from floor area, require this to be noted on the Certificate of Occupancy.

Add skylights to the list of permitted obstructions on a rooftop within a court.

Clarify that sun control devices, if not accessible, do not count toward floor area.

Clarify that wind turbines are allowed to exceed a height limit as set forth in this proposal on top of portions of a building that are at least 100 feet in height, but not on lower portions of a building, where a different portion of the building is at least 100 feet in height.

A report that was submitted by the Commission on March 28 is available here.

Among other things, the report makes the following findings with respect to energy efficiency retrofits in terms of energy savings, greenhouses gases, and job creation.

Energy Savings: The report states that scaling building energy efficiency retrofits in the United States offers a $279 billion dollar investment opportunity. The energy savings over 10 years could total more than $1 trillion.

Greenhouse Gases: The report finds that scaling building retrofits could eliminate more than 600 million metric tons of CO2 per year, approximately 10% of U.S. emissions in 2010.

Job Creation: The report concludes that increased building retrofits could create more than 3.3 million new direct and indirect jobs.

The report also addresses several financing options for retrofits, including Energy Service Agreements (ESAs), Property Assessed Clean Energy (PACE), and on-bill-finance options, all of which have the potential to address historical barriers and achieve scale across different market segments. The report states that PACE has potential as a model for all segments, but it requires significant regulatory support and acceptance from the mortgage industry, neither of which currently exists. On-bill finance could be utilized with enabling regulation or used as a mechanism to enhance other financing models across the three building market segments.

The report concludes that the ESA structure has the potential to scale quickly and meet the needs of both real estate owners and capital providers in the commercial and institutional market, without requiring regulations or subsidies.

On February 2, 2012, the Urban Green Council released a report finding that New York City is on track to meet its goal of lowering carbon emissions, energy consumption, and waste by following recommendations of the Green Codes Task Force.

The Task Force, which was created in 2008 by Mayor Michael Bloomberg and City Council Speaker Christine Quinn, consists of City officials and several hundred volunteers from architecture, public health, construction, real estate, organized labor, housing, and other fields.

The Task Force’s recommendations cover revisions of City construction, fire, water, sewer, and zoning codes to incorporate a broad range of energy efficiency and environmental measures.

According to the report, the 29 recommendations adopted by the City to date will divert 100,000 tons of asphalt from landfills each year and, by 2030, reduce greenhouse gas emissions citywide by 5 percent, lower the costs of lighting energy by 10 percent, save 30 billion gallons of water through better plumbing regulations, treat 15 million gallons of toxic construction water, and provide $400 million in savings.